Wall St falls amid fresh concerns over toxic assets

Wall St falls amid fresh concerns over toxic assets

By Alistair Gray in New York
Published: November 12 2008 13:55 | Last updated: November 12 2008 21:43

Wall Street stocks neared fresh five-year lows on Wednesday after the US Treasury’s backtrack over toxic mortgage assets renewed investor concerns over authorities’ ability to deal effectively with the financial crisis.

Several financial stocks hit new bottoms and the sector sank 6.9 per cent overall after Hank Paulson, treasury secretary, reversed course on its plan to mop up the illiquid assets.

“It’s causing more confusion,” said Walter Gerasimowicz of Meditron Asset Management.

Morgan Stanley tumbled 15.2 per cent to $11.94 as the bank’s plans to cut 4 per cent of its workforce highlighted the bleak prospects that the sector already faces. Citigroup slumped to its lowest in 12 years, down 10.7 per cent to $9.64.

The benchmark S&P 500 index closed down 5.2 per cent to 852.30 points, the Dow Jones Industrial Average 4.7 per cent at 8,282.66 and the Nasdaq Composite index 5.2 per cent at 1,499.21.

A sharp afternoon sell-off left the S&P as little as two points away from the low hit last month. JPMorgan told clients to “expect a retest”.

The Chicago Board Options Exchange Volatility index, known as Wall Street’s “fear gauge”, shot up another 8.3 per cent to 66.51 and continued to indicate elevated signs of distress.

Just as fears over the health of the financial sector heightened, yet another round of grim developments elsewhere highlighted the bleak prospects facing corporate America in what is expected to be a severe downturn.

Retailers were among traders’ biggest concerns as Best Buy warned of a “rapid, seismic” downturn in consumer spending when the electronics chain slashed its profit forecast for the year.

It came just days after rival Circuit City filed for Chapter 11 bankruptcy and some traders had originally hoped Best Buy could take advantage of the failure.

Consumer-facing technology groups also came under pressure from the update. Apple finished 4.9 per cent lower at $90.12.

Google dropped below the psychologically significant $300 mark for the first time in more than three years, down 6.6 per cent to $291 after analysts at Citigroup became the latest to cut their forecasts.

Also damping the mood in retail, Macy’s disclosed a $44m third quarter loss as like-for-like sales at the department store chain fell 6 per cent. The shares rose as much as 5.5 per cent early in the session when it unveiled results that were not quite as dire as Wall Street expected, but it still closed 11.1 per cent lower at $8.37.

Bed, Bath & Beyond initially escaped the pain in the sector on the back of a rare analyst upgrade. Goldman Sachs upgraded the stock from “neutral” to “buy” as the stock had dropped 20 per cent in the past month, yet it too succumbed and closed down 2.3 per cent at $20.49.

The materials and energy sectors were punished once again, down 6.4 and 7.3 per cent respectively on sharply lower commodity prices.

AK Steel shed 24.7 per cent to $7.73 after temporarily idling some of its operations in Ohio and Kentucky due to a slump in demand.

The move came just days after Alcoa announced it had slashed another 350,000 tonnes of aluminium-making capacity. Alcoa fell another 7 per cent to $10.17.

All that overshadowed hopes that Washington may provide a fresh rescue package for the country’s struggling carmakers.

General Motors and Ford were among the few bright spots, advancing 5.5 per cent to $3.08 and 2.2 per cent to $1.84, respectively, after Nancy Pelosi, House Speaker, urged Congress to intervene in an attempt to save the ailing industry from collapse.

The fate of the pair has been among investors’ main concerns this week and have helped drag the market sharply lower.

Elsewhere in financials, American Express – the latest financial group to win approval to become a bank holding company – tumbled 10.5 per cent to $20.05 after reports emerged that the credit card group could request about $3.5bn in aid from the government.

Meanwhile, Focus Media lost another 9.4 per cent to $8 after Deutsche Bank cut its price target to $9.34.

Prologis topped the S&P loser board, down 34.9 per cent to $4.47 after the warehouse developer cut its dividend and said it planned to halt new developments.

http://www.ft.com/cms/s/0/48b0fe9c-b0bd-11dd-8915-0000779fd18c.html